Jio’s disruptive move impacts Bharti and Vodafone Idea

Jio has launched the JioBharat feature phone, an affordable internet-enabled device priced at Rs 999, to enable a seamless transition for 2G users to the 4G network in India.

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The launch of the JioBharat phone has the potential to add 20-30 million subscribers to telecom operator Jio’s base on an annual basis, which could result in a 2-3 percent increase in its fiscal year 2025 revenues and EBITDA, analysts said.

Jio has launched the JioBharat feature phone, an affordable internet-enabled device priced at Rs 999, to enable a seamless transition for 2G users to the 4G network in India. The JioBharat recharge plan starts at Rs 123 for a duration of 28 days, offering cost savings of 30 percent compared to similar plans by Vi and Airtel. Additionally, JioBharat provides a data allowance of 14GB, which is seven times more data compared to Vi and Airtel plans.

“This disruptive move has the potential to halt any incremental tariff increases for 2G services and could benefit Jio by allowing them to gain a larger market share in this segment…..This strategic approach positions Jio well in both the premium and value segments of the market,” financial services firm JP Morgan said in a note.

“We think this is negative for both underweight rated Bharti and IDEA given returning disruption and tariff aggression at the bottom of the pyramid and signals lack of support for 4G tariff actions,” the JP Morgan report added.

Vodafone Idea and Airtel had 103 million and 111 million 2G subscribers, respectively, at the end of the final quarter of FY23, and if 40 percent of their 2G users move to JioBharat, the shift may impact their India mobile revenue by 11 percent and 8 percent, respectively, and impact mobile EBITDA by 19 percent and 11 percent, respectively, according to brokerage firm Emkay Research. It will impact Airtel’s consolidated EBITDA by 6 percent, said the brokerage firm, which has maintained its long-term positive stance on Reliance Jio and Airtel.

According to Goldman Sachs, Jio could add 15 million incremental subscribers or 3 percent of its current subscriber base of 431 million as of March 2023 — wireless only. The brokerage house believes existing JioPhone users (base of 50-75 million per GSe) could also look to shift to this new device from Jio as they come up to their replacement cycle, unless upgrading to smartphones.

Jio has already taken an aggressive stance in the market by introducing competitive postpaid plans and attractive pricing for its fibre services in March 2023. According to JP Morgan, the introduction of Jio’s latest phone has the potential to capture market share in the lower end segment, posing a risk to Bharti.

Bharti’s recent move to increase its 2G plan price from Rs 99 to Rs 155 could result in increased churn as Jio’s offering presents a competitive alternative.

“We believe this is negative for Bharti as any hopes of a tariff hike should be diluted over the next 12-18 months. We believe a combination of higher 5G capex, a lack of tariff hikes and deflation in premium ARPUs will drive down ROICs for Bharti, keeping us UW,” the JP Morgan report added.

Since Jio’s entry into the Indian market in 2016, the active 2G subscriber base has witnessed a decline of around 70 percent, reaching 249 million subscribers. This decline can be attributed to multiple factors, including the increasing penetration of smartphones in the country. Additionally, the launch of JioPhone in 2017 played a significant role in the migration of over 100 million 2G feature phone subscribers to 4G services, according to Jefferies India.

According to analysts, Jios device pricing is attractive given that it is at a 20 percent discount to the estimated average selling price of feature phones in India. Furthermore, JioBharat’s service pricing is also quite attractive since it is 31 percent cheaper and offers higher data usage (0.5GB/day) vs Bharti’s 2GB/28 days.

“JioBharat is better placed to disrupt the market vs. the original JioPhone in 2018, as it is a more focused product, simpler value proposition, better distribution and production planning and better timing given the recent increase in 2G tariffs by competition,” said Emkay Research. “We believe JioBharat will help drive churn in this segment and help Jio extract reasonable ARPU (vs the earlier JioPhone starting at Rs 70-80), despite being cheaper than competition.”

Emkay Research predicts that JioBharat has the potential to replicate the success of the JioPhone and attract over 100 million users. Leveraging Jio’s robust network, strong distribution capabilities, and the JioBharat device, Jio is expected to capture over 40 percent market share. The JioBharat value proposition, combined with strategic partnerships with OEMs such as Karbonn, will facilitate faster scalability compared to the JioPhone, according to Emkay. Given the prior success of JioPhone, which had an installed base of over 100 million users between 2018 and 2020, there is a solid precedent for JioBharat’s potential growth.

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